Can regional policies shape migration flows

We consider how two groups of regions, which differ in productivity and public good endowments, compete in tax and public goods to attract or reject migrants. In our framework the less productive regions receive public transfers which increase their panoply of public goods. We find that, whenever public transfers are sufficiently high, migration to the less productive regions is observed only in the case when the productivity gap between regions is not extremely wide. We then employ a regression discontinuity design to empirically assess the causal relationship between the reception of large amounts of public funds and migration flows in the EU-15 regions. The theoretical predictions are broadly confirmed as we find a wide expansion in the share of foreign citizens in the highlysubsidized regions, when compared to low-subsidized regions with similar pre-treatment characteristics.